With all of the headlines about the U.S. losing out to Europe today, it is hard to imagine that the situation will soon turn radically in the opposite direction. However, the demographics foretell a radically changing situation. Europe is headed for major problems as their population ages and declines far more than that of the U.S.. The report includes a chilling quote from historian Niall Ferguson, who  notes that there will be “the greatest sustained reduction in European population since the Black Death of the fourteenth century.”

Japan has even greater problems.   Their population is aging rapidly, and by 2050 will have a median age of 56.

With all of the current problems in America, it is hard to imagine that the U.S. is in much better shape than the rest of the ‘developed world.’ However, with the U.S. total fertility rate at replacement level (just under 2.1, a level that keeps the population from declining), this country will increase from 34 percent of the developed world’s population to 43 percent by 2050. The report details similar progress for the U.S. in GDP, relative to the rest of the developed world.

The stability of the U.S. population is clear in the fact that this country was the 3rd ranked country in the world in 1950, is in the same position today, and will also be third in 2050. Japan and the countries of Europe are dropping down the list. As an example, one of the most problematical is Italy, which was the 10th largest country in the world in 1950, dropped to 23rd in 2005, and will be 39th in 2050.

Very scary statistics for the developed world. The situation is scarier when the ‘youth bulges’ of troubled areas like Africa and the Middle East are considered. The report addresses the likelihood of great unrest in those areas, with major implications for neighboring developed countries.

The U.S. has to address a new, radically changed world where our population is far more aged than before. That must involve workers staying on the job until later ages.

That is not happening rapidly enough. Companies are worried about dealing with older workers, so most of them procrastinate about taking action. Older workers are hesitant to consider a new paradigm regarding work at older ages.  Government agencies jaw about the problem but don’t do enough (maybe the evidence that the Pension Protection Act is proving to be very effective will prompt government to take more action).

The U.S. has a major opportunity to lead the developed world, and to make contributions to the developing world. Developing the older workforce must become a top public policy priority. Soon.

The CSIS summary of findings can be found at this (link). To purchase the full book use this (link).

This book should be on the bookshelf of anyone involved in the issues of working later in life and/or retirement. The 52 pages of notes and references at the end of the book alone represent a great resource for understanding the dynamics of those issues.

Many politicians and commentators talk about worries that Social Security will disappear in the future. Many politicians say that they are going to “save Social Security.” What they seldom address is the fact that Social Security has already been significantly eroded. Munnell and Sass do a great service by quantifying the fact that “the full retirement age is being increased from 65 to 67,”…” Medicare part B premiums are slated to increase sharply,” and “SS benefits will be taxed more….as the benefits are not indexed to inflation.” The net of these changes will “reduce the net replacement rate for the average worker who claims at age 65 from 39 percent (of pre-retirement income) in 2002 to 30 percent in 2030.” To compensate for just these factors “workers will need to extend their work lives by about four years.”

A very important part of the book addresses the even more difficult time that women will have.

The only issue that I have with the book is that there are many references to problems that employers and workers have with working later in life. However, they do not give enough focus to the Towers-Perrin study (link) that delineated the fact that older workers do not cost more. Their higher health costs are offset by less job switching, less absenteeism, etc. As Bill Novelli, CEO of AARP and the sponsor of this study, told me, “This is the seminal study regarding the value of older workers.”

The older workers could be even more valuable if, as Munnell and Sass point out, “Most older workers have sufficient mental agility to learn and adapt if given the necessary training, but few get trained and many fail to learn and adapt on their own.”

This is a major contribution. Read it!

The author is very articulate in describing many of the reasons for the birth dirth in Europe, and especially the Eastern and Southern parts of Europe. However, he does not recognize that the trend to lower fertility has been going on for two centuries. Napoleon worried about it. So did Teddy Roosevelt. Allan Greenspan told Congress that this has been going on for “at least 150 years.”

We must recognize this new demographic reality. The only reasonable solution is to create a paradigm shift regarding the potential of older workers.

However, the argument must move beyond what is going to happen to the average worker. If the nation is going to maintain any semblance of the GDP growth of the past decade, government and business must do something to educate and motivate skilled workers.

Engineers are a frightening example. Many reports have been published about a shortage that already exists in many of the engineering disciplines in the U. S. (a recent example was Workforce Management’s repor that “Engineers, Machinists, Tradesmen in Short Supply” (link). Many executives and government specialists may be counting on importing that talent from abroad. Recent international reports will question that assumption.

The Financial Times reported on May 12, 2008 that “Germany, home of the engineer, faces acute skill shortage.” (Registration required). The FT reports that there are 95,000 unfilled posts in Germany.

 The International Herald Tribune reports on June 8, 2008 that “Japan is running out of engineers.” (Link).

Hmmmm. The three largest economies, and the three that were responsible for such a large percent of the technical innovations for several decades, are now running short of technical innovators.

Would anyone who does not think that we have a workforce crisis, and that we need to desperately work to keep our current technical people in the workforce, please detail why not in a response!

 Details on the legislation can be located on Rep. Emanuel’s web site.

Schieber analyzes the cost to have a hypothetical worker (starting to work at 22, $30,000 per year, continuous employment and salary increases) receive retirement income (combination of private and government benefits) that is 75 percent of preretirement earnings. A top-line summary that does not do justice to his work is that the total cost of the ‘own retirement saving and health insurance’ for someone who wanted to retire at 65 in 2005 would be ‘approximately 14% of their pay’ and that would go to 23.6 percent in 2030. Add government programs to that and the cost goes from 31.3% of pay to 52.4 percent of pay in 2030.

You get the picture. It is going to be impossible to continue with a 19th century definition of when workers should expect to retire (thanks to Count von Bismarck). We need more efforts like those of Senators Kohl, Smith, and Conrad (mentioned here in the last post) so the many who want to stay on the job can do so, and hopefully, over time, bring the median age of retirement up to a more realistic level. 

Most of you probably picked up this notice through the NCOA. However, if only a few are added to the awareness of this action, it is worthwhile. We all bemoan the inaction in DC. Here are some senators that really appear to have put forward a very positive series of recommendations. We all make an effort to support them!

One of Gordon’s fundamental premises relates to the coming retirement of the 78 million Boomers. Peter Capelli of Wharton has called this ‘Gray2k.’ He believes that there will not be a crisis, but does so because he believes that Boomers will be paid/motivated to stay in/return to the workforce. Let’s hope so, because as Gordon points out, the 55+ workforce will have to have a rate of employment 25% greater than it is today “to maintain productivity.”

Gordon then points out that while this massive wave of retirement has started to arrive, the situation is compounded by a pathetic record for U.S. education and training. For a country that used to lead the world in education, it is sad to see the statistics that “… U.S. students ranked 15th out of 29 OECD countries in reading, and 24th out of 29 nations in mathematics.” He notes that only 2o% of the workers are qualified for 60% of the jobs (statistics from The Hudson Institute). This poor education/lack of training is likely to leave a majority of the U.S. workforce becoming “techno-peasants,” a great phrase by Gordon that paints a sad picture for the future of our youth.

Is the scenario all pessimistic? Not necessarily. Gordon points out several municipalities that have developed industry/government/education initiatives. An outstanding example is Fargo, ND. The Skills and Technology Training Center developed by the community has brought many companies into Fargo. Unemployment is 2%. Fargo has Microsofts’ 2nd biggest campus. Community cooperative efforts are needed and can work. Gordon details how federal efforts, on the other hand, produce little or nothing.

Relating to my earlier post on a potential ‘Global Competitive Advantage’ for the U.S., there is a section detailing a drastic problem with aging populations in Europe, Japan, and, yes, China (for those who have a hard time believing this, refer to a McKinsey Quarterly article just published on this subject [link]).  

Finally, Gordon wraps up with an appeal dear to this blog, to keep older workers on the job.

 The book is ‘The 2010 Meltdown: Solving the Impending Jobs Crisis,’ by Edward E. Gordon, published by Praeger.

This could be disastrous for efforts to keep Boomers on the job. Social Security benefits are taxed, except for the lowest income level workers. To workers debating whether it is worth it to stay employed, if they have claimed Social Security early, seeing those tax dollars being taken out of each check could be the final straw in pushing them into retirement.

If such a trend becomes widespread among Boomers, their actions will only compound the entitlement crisis budget woes. As I have noted in earlier posts, the recent trend to later retirements was encouraging, because later retirements could help reduce the staggering deficits projected for Social Security and Medicare. The “bird in the hand” attitude pointed out by USA Today, could turn the trend, with disastrous consequences for GDP and government budgets.

USA Today does a great service by including interactive graphs from the American Academy of Actuaries. Rather than rely on (incorrect) conventional wisdom, workers should consider their health, and, while it is something many people have a very difficult time addressing, assess their likely life expectancy. For healthy people, taking Social Security early is an extremely bad bet. The cumulative loss in benefits reaches tens of thousands in your 80’s and hundreds of thousands in your 90’s, as is clear in the American Academy of Actuaries tables. As the article points out, “there’s a 58% chance that (for a couple) one of them will live to 90 and a 29% chance that one will reach 95.” If you, and even moreso you and your spouse, are healthy in your 60’s, why would you give away that money to the government?

A primary concern of those looking at impending old age is that of not having to be dependent. Social Security is an inflation-adjusted (most private pensions are not) monthly check that, if maximized by later claiming, can help provide at least a partial guard against dependency.

Finally, the risk of the government cutting the benefits for those already in their 60’s is very unlikely. Politicians going back to the Greenspan Commission in 1982 have stated a precedent that reducing benefits at a time when it is too late for individuals to do anything about it would be extremely unfair. Add that to the political clout of the senior citizens and cuts to those in their 60’s are just not likely to happen.

 USA Today has made it a policy to regularly deal with key issues on the important subjects of population aging, and this is one of their best. We regularly check those out, but thanks to BoomerBlog for the heads up on this one.

The Federal Reserve study details Labor Force Participation Rates by various age, sex, and ethnic breakdowns. For one thing, this is one of the better illustrations regarding the theme of this blog, the great increase in Labor Force Participation by women and minorities. However, the danger signs are evident among those groups, as the study illustrates how those trends have levelled off.

The study concludes that “the aging of the baby-boom generation”… “..is likely to lower aggregate participation rates for the next several decades.” They go on to say that “it may become increasingly difficult to maintain growth in our standard of living because there will be fewer workers generating goods, services, and income…”

These trends could be counteracted, of course, by government action to remove disincentives from work (like those affecting phased retirement, and defined contribution plans); and maybe even provide some significant incentives for older boomers to stay on the job. Let’s hope, and fight for, the actions that could precipitate extended work patterns. Let’s make Dr. Capelli’s forecast come true!